SREERAM COACHING POINT, Chennai

Best Oral Classes at Chennai, Bangalore and Ernakulam

ECONOMIC ORDER QUANTITY

The objective of EOQ is to reduce the associated cost of material.

The associated costs are ordering cost and carrying cost.
As the quantities ordered were higher, then frequency of order will come down so too ordering
cost. However, this will increase the carrying cost, as the period of carrying will be more because
of higher quantity.
If the quantity ordered were to be lesser, frequency of buying will be more so too ordering cost
but carrying cost will eventually be lesser.
If one plots these two costs (ordering and carrying) then there will be least of the total cost will
occur at a point. This point will be referred to as Economic order quantity.
It will also be a point of intersection of ordering and carrying cost. In mathematical terms
OC=CC.

Annual demand
OC

QTY
QTY
CC

Cc per unit

2
If these two are equated then automatically Economic Order Quantity is ascertained

Q
x

2AO
x

Q^2

2AO

=
C

Visit www.sreeramcoachingpoint.com
L.MURALIDHARAN
09444048990

=
C

SREERAM COACHING POINT, Chennai

Best Oral Classes at Chennai, Bangalore and Ernakulam

Total Cost
Carrying Cost

Ordering Cost

Economic Order Quantity

Visit www.sreeramcoachingpoint.com
L.MURALIDHARAN
09444048990